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Mexico Plans New Budget Cuts

Mexico’s Finance Ministry says it plans further spending cuts next year, as weak oil prices pile pressure on a budget that has had billions of dollars sucked from it since the start of 2015.

One day after Moody’s lowered the outlook on Mexico’s credit rating, the ministry said it aimed to make savings of 175.1 billion pesos ($10.1 billion) in 2017. That followed a February announcement in which it cut 2016 spending by 132 billion pesos, or 0.7% of gross domestic product, Reuters reported.

Mexico’s public finances would have to cope with a “complicated international outlook” next year and “a substantial improvement in the fundamentals of the oil market was not foreseeable,” the ministry said in a statement.

Oil revenues have traditionally funded about one third of the federal budget, and the ministry said it foresaw Mexican crude prices would slightly recover in 2017 to $35 per barrel, compared to its estimate of $25 per barrel for this year.

However, Mexico has hedged around half of its expected crude exports in 2016 for at least $49 a barrel.

The ministry also said it expects economic growth to be between 2.6% and 3.6% in 2017, better than the central bank’s current 2016 forecast of between 2% and 3%.

The dip in oil prices has battered the peso, but the ministry forecast the average exchange rate would strengthen next year to 17.2 pesos per dollar, compared to its prediction of 18.00 pesos per dollar for 2016.

Mexico has opened up its oil and gas industry to private investment in a bid to reverse a slide in crude output, but the ministry forecast production would drop in 2017 to 2.028 million barrels per day (bpd) from 2.123 million bpd this year.